I evade. Do you? Compliance in groups and the effect of social proximity

Collaborative tax evasion is a commonly observable problem, and examples such as the “LuxLeaks” or the “Panama Papers” are only two among many instances of such illegal collusive behavior. To counteract tax evasion and hence induce behavioral change, information provision about other anonymous individuals’ behavior is a recurring type of intervention. However, in accordance with previous research, it is plausible to assume that its use to promote tax compliance and thus fight tax evasion may backfire, when noncompliance is widespread. Further, due to the asymmetric effect of peer information, which describes individuals conforming solely with observed examples of peer’s non-compliance with a certain (informal) rule, it seems sensible to expose individuals to information about peers with whom they are especially socially proximate. So far, there are only few insights on the channels through which the effect of peer information works. Prior research in other domains however suggests, that social proximity between two partners may affect how information about their behavior affects own behavior. Further, empirical evidence suggests social proximity to allow to elicit responses to both compliance and violation of certain (informal) rules. I thus consider it crucial to shed light on the effect of social proximity with peers on collaborative tax evasion efforts.
Using an online sample, I run a randomized control trial in the form of a collaborative tax evasion game. The outcome of interest is the subjects’ tax compliance (income declaration rates of their company’s income). The random treatment assignment to one out of three treatments regarding information on social proximity with peers, the baseline (T1), social proximity (T2), and no social proximity (T3), is based on the subjects’ entry in the study’s experimental sessions.
Given a certain baseline level of compliance, I hypothesize social proximity to decrease the erosion of compliance, as individuals exposed to information on social proximity with their peers, will conform with peer’s compliance and noncompliance to a similar extent. However, I assume this effect to only hold in socially proximate groups and to be absent within non socially proximate groups.